New House Price Index Distorted By HST

The Roof Tiles by Dilip Muralidaran
The Roof Tiles by
Dilip Muralidaran

Following the price level of housing starts has become more difficult in recent weeks. This index distortion is caused by upcoming Harmonized Sales Tax, which is about to kick in at the beginning of July 2010. However, some builders in Ontario, aware that part of their houses will not have a new owner before July, started adding the tax on newly built homes. Since the New house price index strips out HST, the results from February (and upcoming March results as well) may be confusing.

Nevertheless, housing construction is expected to grow in upcoming months. Not only solid demand on the housing market, but also large number of new building permits in March support this opinion. New starts are usually lagging up to two months behind permits, so April and May will be the strongest months. However, with HST implementation, summer and fall 2010 will bring moderate slow down in construction activity. In medium term, HST-effect should be (at least partly) offset, since HST will reduce some of the input costs.

Leave a Reply

Your email address will not be published. Required fields are marked *